The Future of Crypto Law

A Crypto primer: • Cryptocurrency, or Crypto, is a digital currency. • Crypto is completely decentralized, meaning that it is not issued nor controlled by any central banking authority. • Crypto transactions are recorded on a public transaction database using a technology called blockchain. • Blockchain technology is essentially a distributed ledger book. • Bitcoin was the first cryptocurrency ever created but now there are more than 9,000. • Bitcoin and Ether are the most popular cryptocurrencies, with Bitcoin having the higher market capitalization but Ether being the more environmentally friendly and versatile.

For many years, Crypto was a small and misunderstood technology, operating on the fringe of the public consciousness. In many ways, it remains misunderstood, but it is anything but small: at this time last year, the International Monetary Fund estimated the cryptocurrency market capitalization at approximately $2.5 trillion,1 and while that fell upon a large market contraction, the Crypto market cap is still north of a trillion.

It is undeniable that Crypto has gone mainstream– with Crypto exchanges making the once opaque Crypto purchasing process more seamless and transparent, around twenty percent of Americans have purchased Crypto at some point.

The explosion in Crypto’s popularity has granted Crypto legitimacy but also drawn criticism, in somewhat equal parts. Crypto evangelicals tout Crypto’s decentralization, anonymity, and the plethora of potential applications and integrations; its detractors criticize the utilization of Crypto for illegal or terrorist operations, the risk and instability in the market, and the “Wild West” regulatory landscape.

With such unprecedented amounts of money being invested in such prescient technology, governments, NGOs, and investors are now calling for a comprehensive regulatory framework, as well as warning of economic destabilization and capital market disruption in the absence of that framework.

One of the core issues in establishing a regulatory framework is how to treat Crypto “coins” or “tokens,” the terms used to describe units of cryptocurrency. Some, including Gary Gensler, the Chair of the Securities and Exchange Commission (SEC), have argued that Crypto coins are securities, which would bring them under the domain of SEC authority; however, others counter that Crypto coins are more akin to futures, which would subject them to Commodity Futures Trading Commission (CFTC) regulation. This issue has been at the heart of efforts to regulate the Crypto market.

Earlier this year, a bill was introduced in the Senate that attempts to answer this question. The Digital Commodities Consumer Protection Act of 2022 (DCCPA) would provide some delineation of responsibility for regulation of the Crypto market. Under the DCCPA, the CFTC would have exclusive jurisdiction over the regulation of the trading of “digital commodity[ies].” The DCCPA explicitly defines Ether and Bitcoin as crypto coins subject the CFTC’s jurisdiction.

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